US Treasury official sparks confusion over China ties ahead of G20 meeting of finance chiefs

A top US Treasury official sparked confusion on Sunday at a G20 conference in Argentina by announcing America’s withdrawal from decade-old economic talks with Beijing, saying the White House is “disappointed” with the Chinese government’s expanding role in its economy.

“Because there wasn’t a path back toward a market orientation, I discontinued the China economic dialogue,” said David Malpass, Treasury’s undersecretary for international affairs.

The statement was swiftly clarified within hours and caused immediate confusion.

“I misspoke,” David Malpass, Treasury’s undersecretary for international affairs, told reporters in Buenos Aires on Sunday. “(Treasury) Secretary (Steven) Mnuchin has high-level talks with China,” he said, reiterating that the department has “private” conversations with senior officials in China.

The US-China Comprehensive Economic Dialogue is a long-standing channel for formal talks between the nation’s finance chiefs.

Mnuchin has frequent private talks with senior-level officials in China to bring back focus to free-market capitalism, said Malpass.

“One of the things we are doing is trying to keep open lines of communication with them even as we express concern” about the growing influence of China’s state-owned enterprises, Malpass said, speaking in Buenos Aires ahead of the Group of 20 finance ministers meeting.

Worries are rising that Trump’s push to rebalance trade in America’s favour will increase tensions with Beijing and alienate him from close allies, many of whom are at the G20 meetings.

The White House’s plans to impose import tariffs on steel and aluminium this week threaten to spark a trade war with the European Union and Asia that could undermine global growth.

German Finance Minister Olaf Scholz pushed back against protectionism on Sunday, saying his message for Mnuchin is that free trade is “a very important resource” for the world economy.

Without specifically citing the duties, G20 nations warned about unfair trade practises in the draft of a statement that finance ministers and central bankers will discuss Monday and Tuesday.

Malpass said the US wants to work with other nations to come up with a united response to what America sees as China’s foot dragging on economic changes, ranging from reforming state-owned enterprises to curbing the ruling party’s role in the economy.

“Their markets are not reciprocal in the sense that there’s not an ability for other countries to work in China the way that China works in elsewhere,” Malpass said in an interview. He highlighted a risk for the world from China’s autocratic rule.

Neither China’s Ministry of Finance nor Ministry of Commerce responded to requests for comment sent outside normal business hours on Malpass’s comments.

Meetings of the first Comprehensive Economic Dialogue under Trump fell apart in July 2017.

The two superpowers were unable to produce a joint statement after Commerce Secretary Wilbur Ross scolded China over its trade imbalance with the US in his opening remarks. Both sides pulled out of the final news conference.

President Xi Jinping in recent weeks sent his top economic adviser, Liu He, to speak face-to-face with Mnuchin.

In that meeting, Liu is said to have asked Mnuchin for a point-person to provide a list of specific demands from China, a sign that Treasury’s shuttering of the formal dialogue process may be hampering any efforts to improve relations.

The White House’s critique of China contrasts with the more collaborative approach of both the George W Bush and Obama administrations, who courted the nation as an economic partner.

Trump has repeatedly portrayed China as a rival that wants to undermine American prosperity. The administration is considering clamping down on Chinese investments in the US and imposing tariffs on a broad range of its imports to punish Beijing for its alleged theft of intellectual property.

Still, the economic bond runs deep between the two countries. China owns nearly US$1.2 trillion in Treasuries, making it the largest foreign creditor to the US.

Reports of Chinese officials considering slowing or halting purchases of US government bonds sent yields to its highest level in the preceding 10 months.

At the same time, though, China is so heavily invested in US public debt that it has an interest in keeping the market healthy, economists say.

Malpass on Sunday had kind words for Yi Gang, who The Wall Street Journal said will replace Zhou Xiaochuan to run China’s central bank. Yi is known for his deep international ties, and both studied and taught in the US.

“We need to have a balance in the relationship that’s not there now, a reciprocity in terms of investment flows, trade flows and policies,” Malpass said.

One of Mnuchin’s primary aims at the G20 this week is to gain greater visibility into loans China has made to developing countries. The Trump administration is concerned that Beijing is attempting to extend its influence with the loans while moving away from opening its markets to American goods.

“On the positive side, the world is recognising that and beginning to work together. Recognising that having such a big economy in the world move away from markets has not been good for us, for the world,” Malpass said.